Credit Funds: Evolving Hybrid and Other Structures

Insights from SRZ’s leading investment management practice

Hamlin Lovell
Originally published in the November | December 2019 issue

Stephanie Breslow’s practice spans liquid fund strategies (including hedge) and private equity, and often strategies at the intersection of both: credit, litigation finance, activism and blockchain assets, where hybrid skills and knowledge – as well as multiple other expert practices within the firm – come into play. Breslow is a Schulte Roth & Zabel partner who serves as co-head of the Investment Management Group and as a member of the firm’s Executive Committee. 

Credit funds have become “the new banks” since the 2008 crisis, as traditional banks lent less and a non-bank lending industry flourished. Strategies range from mezzanine credit funds with lower risk and return targets, to loan origination funds and distressed debt funds that get involved in non-performing loans, and entities going through or exiting insolvency or bankruptcy processes. Specialty credit funds can focus on areas such as litigation finance or life settlements, which are also known as viatical settlements. CLOs (collateralised loan obligations) packaging corporate loans are hot again, and in fact anything with a recurring cash flow, such as student loans, credit card loans, auto loans, aircraft leases, film or music rights, can be securitised. 

Though a diversity of credit strategies has proliferated, it has been challenging for some funds to raise assets as yield compression reduces their returns while strong equity markets also make for tough comparisons. A dislocation in markets could increase the opportunity set for some credit strategies, by allowing them to earn higher interest rates and increasing the supply of distressed opportunities. 

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